Shirking responsibility time and time again

Terence O'Halloran

The article ‘Regulator launches probe into insurance premium disparity’ (FA, 11 July) I have my own observations.

Five years ago I wrote to Hector Sants – then chief executive of the FSA – along with a number of leading life assurance companies quoting the circumstances of three male clients who had received “five-year review” documents on their unit-linked whole-of-life policies.

A colleague and I found that life assurance companies were completing reviews on an incorrect and unfounded basis, which resulted in higher than required premiums being charged to the clients in order to continue their whole-of-life cover.

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Whole-of-life assurance is underwritten on a select life basis. This means that if we took a group of healthy 20-year-old males – a select group – they would have a mortality expectation of some 86.7 years of age. If we use general mortality, or 20-year-old males from birth with varying health situations, then male mortality would be 75.6 years.

That differential means that the select life male can obtain life assurance at a reduced premium compared to the general population applicant.

Friends Life (as Sun Life) issue policies based on general mortality and therefore higher premium whole-of-life contracts for the over-50s.

What our analysis showed was that underwriting offices were using general population premiums for what was a select life contract, thereby increasing their own premium intake.

The FSA ignored our case studies, whereas all three insurers we contacted modified their response and acknowledged “the possibility that there may have been a mistake.”

The point that I would make is that the regulator, when posed with a genuine consumer concern that has a technical base, backs away from it at the speed of sound. Where they can experiment with other people’s money unchallenged, unqualified and to a large degree unseen, they have all the enthusiasm in the world.

Terence P O’Halloran

Chartered Financial Planner